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ECONOMY

Sweden holds on to record low interest rate

Sweden's national bank (the Riksbank) has announced that the nation's record low key interest rate will remain unchanged at -0.35 percent.

Sweden holds on to record low interest rate
Swedish kronor. Photo: Fredrik Sandberg/TT
The Riksbank has also said it is expanding the country's bond-buying programme, with a further 65 billion kronor ($766 million) spent on the project. 
 
The Nordic nation first slashed its interest rate – the repo – below zero in February in a landmark decision. It's national bank continued to cut rates in subsequent months, with the -0.35 rate introduced in July.
 
The Riksbank is hoping that its financial strategy will boost inflation in order to raise the price of everyday goods and services in Sweden which have been stagnant for two years. It has argued that this in turn will improve the country's economic prospects.
 
In a statement following Wednesday's announcement, the bank said that “economic activity is strengthening and inflation is showing a clear upward trend”.
 
The bank said that inflation was still on course to be close to two percent in 2016.
 
However it explained that it was keeping rates low due to “considerable uncertainty regarding the strength of the global economy”.
 
“Compared with previous forecasts, inflation abroad is deemed to be slightly lower and many central banks are expected to pursue an expansionary monetary policy for a longer time,” the text continued.
 
The basic idea behind negative rates is to stop organisations or people from making risky investments or transactions that could impact on the wider economy.
 
However Wednesday's decision to hold the repo at -0.35 is bad news for savers in Sweden who will continue to see no return on any nest eggs stashed in basic savings accounts. 
 
But those wishing to borrow money to buy properties or shares will continue to benefit from the record low rates.
 
Sweden's bond buying programme is a version of quantitive easing, which in simple terms involves borrowing money to inject back into the economy. 
 
The Riksbank said that the additional bond purchases announced on Wednesday would bring the total figure bought to 200 billion kronor by the end of 2016.
 
The krona was stable after the announcement but the Swedish market continued to fall, having previously experienced jitters following a forecast from the National Debt Office.

ECONOMY

Sweden’s new right-wing govt slashes development aid

Sweden, one of the world's biggest international donors, is planning drastic aid cuts in the coming years, the country's new right-wing government said in its budget bill presented on Tuesday.

Sweden's new right-wing govt slashes development aid

Prime Minister Ulf Kristersson’s government said it planned to reduce the country’s international aid by 7.3 billion kronor ($673 million) in 2023, and by another 2.2 billion kronor in 2024.

That is around a 15-percent reduction from what had been planned by the previous left-wing government and means Sweden will abandon its foreign aid target of 1 percent of gross national income.

International aid for refugees will be capped at a maximum of eight percent of its aid, and will also be reduced.

According to the specialised site Donor Tracker, Sweden was the world’s eighth-biggest international aid donor in terms of absolute value last year, and the third-biggest in proportion to the size of its economy, donating 0.92 percent of its gross national income, behind Luxembourg and Norway.

The new government, which is backed for the first time by the anti-immigration Sweden Democrats, had announced in its government programme last month that it would be cutting foreign aid.

Since 1975, Stockholm has gone further than the UN’s recommendation of donating at least 0.7 percent of its wealth to development aid.

Despite its growth forecast being revised downwards — the economy is expected to shrink by 0.4 percent next year and grow by 2 percent in 2024 — the 2023 budget forecasts a surplus of 0.7 percent of gross domestic product.

It calls for an additional 40 billion kronor in spending, with rising envelopes for crime fighting and the building of new nuclear reactors, as well as a reduction in taxes on petrol and an increase in the defence budget.

The new government is a minority coalition made up of Kristersson’s conservative Moderates, the Christian Democrats and the Liberal party, backed in parliament by their key ally the Sweden Democrats to give them a majority.

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